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Coronavirus and the property sector

/ 6 April 2020

Andrew Levene

Updated 10 July 

Although the UK Government has announced several measures to help people and businesses through the coronavirus outbreak, some seemed to have fallen through the cracks. Among them are property owners and property businesses.

Landlords

Buy-to-let (BTL) landlords are neither employed nor self-employed and so benefit from neither the Coronavirus Job Retention Scheme (CJRS) nor the Self-Employment Income Support Scheme (SEISS). Given the huge growth in property prices in recent years, this may be a sector that doesn’t gain widespread sympathy.  But some BTL landlords have worked full-time to build up their portfolios and rely on rentals for their daily living.  Such landlords could be feeling the pinch if their tenants can’t or won’t pay the rent.

Businesses and subcontractors

Property businesses are not generally large employers. Even very large property groups can have relatively small numbers of staff relative to their balance sheet value, meaning that initiatives such as the CJRS will be less useful.

An exception is the construction industry, which does employ large numbers of people.  The CJRS could be useful to these companies furloughing employees, while self-employed subcontractors may be able to benefit from the SEISS.  But another black hole is subcontractors who provide their services through a company – these would normally not qualify for either relief.

In June 2020, HMRC responded to the impact of coronavirus on the construction sector by deferring the introduction of the Construction Services Domestic Reverse Charge (CSDRC) for construction services until 1 March 2021.

Cashflow concerns

A bigger issue for property businesses is likely to be cashflow.  Tenants may not be paying in full (if at all), while lenders are still requiring interest payments to be made (although short-term mortgage holiday repayments are available to individual BTL landlords).  Property developers will probably be unable in the current situation to sell property they have developed.  This could give rise to a short to medium-term cashflow crunch.

The starting point for landlords will be to speak to their lenders to see if they can negotiate repayment holidays.  Landlords who are individuals (and also home owners) can apply for a 3 month payment, and it is proposed to extend this to 6 months.  However this applies only to individuals not to companies.  Early indications are that where the 3 month payment holiday doesn’t apply, lenders may not be sympathetic.

The government has told tenants that no evictions can be made for 3 months, which may encourage tenants not to pay rents for the coming quarter or to seek reductions.  A corresponding relief may be needed to protect landlords from their lenders.  We will update you when more information is released.

Stamp duty

In July 2020’s Summer Economic Update (A Plan for Jobs), the ‘nil rate’ band of Stamp Duty Land Tax (‘SDLT’) on residential property in England and Northern Ireland was increased from £125,000 to £500,000.  It took effect immediately i.e. from 8 July 2020 (rumours that it would apply only from the autumn and so paralyse the market until then were happily unfounded) and lasts until 31 March 2021.

It’s not limited to first-time buyers or even to individuals buying for their own occupation: it applies equally to purchases by companies and buy-to-lets (though in each case the existing 3% surcharge applies, and the nil rate band doesn’t apply at all to any company purchases costing over £500,000 if they are caught by the penal 15% rate).

It might be cynical to suggest that the main effect may be to boost the value of properties under the nil rate threshold rather than to save money for purchasers, but sadly that seems, anecdotally, to have been the effect of previous limited-term SDLT reductions.

Government lending initiatives: can property businesses benefit? 

The Coronavirus Business Interruption Loan Scheme (CBILS) provides an 80% Government guarantee against debt finance.  Initially restricted to loans up to £5m, for businesses with turnover up to £45m, the government has now announced the Coronavirus Large Business Interruption Scheme (CLBILS) for loans up to £200m for businesses with turnover of over £45m.  The terms of the original CBILS are explained below.

Importantly, the guarantee is provided to the bank: the business remains liable to the bank for the full borrowing.  Banks are also asking for personal guarantees on these loans, despite the Government guarantee, although have indicated they will not do this for loans less than £250,000.

To qualify for the guarantee, the borrower must have a borrowing proposal which would be viable but for the coronavirus pandemic and where the loan will enable you to trade out of short-term difficulty.  The British Business Bank eligibility criteria say that:

  • The business must be UK-based
  • Businesses from any sector can apply, except certain defined businesses which include banks and insurance companies

There is no mention of exclusion of property businesses.  However, the Bank’s Quick Eligibility Checklist says that the business must generate more than 50% of its activity from trading activity.

It is not clear whether the word trading in this context means general business activity or trading in the tax technical sense.  The former might include an actively managed property investment business, but the tax definition would suggest that property investment was excluded.  However, the tax definition would not exclude property businesses that are treated as trading for tax purposes, which can include property developers, property traders and construction companies, and it seems that in principle these businesses can apply.

The COVID-19 Corporate Finance Facility (CCFF) is for investment grade companies which can issue commercial paper, an unsecured short-term debt instrument.  The government will use the facility to buy up such paper.

The facility is available to groups which make “a material contribution” to the UK economy.  This is expected to apply only to very large businesses. Most businesses are more likely to benefit from the CBILS or CLBILS (see above).

General reliefs

If you’re in the property sector, you can of course take advantage of the general reliefs as listed on our website here.  For businesses, these include:

  • Time to Pay arrangements whereby HMRC will defer corporation tax and other tax liabilities
  • Deferment of VAT for the March-June 2020 quarter to 31 March 2021
  • Statutory Sick Pay for employees off sick with coronavirus or self-isolating
  • Extensions for filing accounts

For individuals, these general reliefs are worth exploring:

  • Deferral of the income tax self-assessment payment due on 31 July 2020 to 31 January 2021
  • Universal Credit
  • Council Tax Hardship Fund

If you’re a landlord, business rates incentives will not generally be of benefit as you won’t be liable for rates while properties are tenanted.  The business rates expanded retail discount is available on properties used as shops, restaurants, hotels and leisure.  It isn’t clear whether an empty, unlet building normally used for these purposes will qualify.  (Empty buildings can qualify for 3 months’ rates free but thereafter normally pay full rates).

On a more positive note…

As with any recessionary environment, there are opportunities for those willing to take them.  For businesses which do have surplus cash or borrowing capacity, there will probably be opportunities to buy up assets cheaply as the crisis unfolds.

For advice on what to do next, our specialists in property and tax would be happy to speak with you. Please get in touch via your usual BKL contact or use our enquiry form.

We are also continually updating our coronavirus page with a range of information and guidance.

Andrew Levene

Senior Adviser, Property Taxes

T +44 (0)20 8922 9394
E andrew.levene@bkl.co.uk

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